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Confidence Continues to Decline among Consumer Products Makers: Study

NEW YORK -- Fear of recession precipitates a further decline in optimism among consumer products senior executives in the fourth quarter of 2007, according to PricewaterhouseCoopers' Consumer Products Barometer, released here yesterday.

In fact, optimism in the U.S. economy reached a low of 22 percent, a drop of 50 points from 72 percent cited one year ago. For the first time in recent years, executives are more pessimistic than optimistic about the domestic economy; 38 percent versus 22 percent, respectively, the barometer found.

"The consumer products sector is being affected by the downturn in the U.S. market," said John Maxwell, leader of PricewaterhouseCoopers' retail and consumer industry practice, in a statement. "However, executives are preparing to weather the economic storm with continued spending support for operations necessary to remain competitive in the marketplace, as well as for capital expenditures to drive the business long-term."

Despite economic anxiety, nearly half (43 percent) of executives are planning major new investments of capital over the next year, up from 37 percent last quarter. Plans for increases in operational spending over the next 12 months primarily focus on new product/service introductions (60 percent), marketing and sales promotion (45 percent), and information technology (43 percent). Executives are increasing the mean investment of capital, planning 7.2 percent of total sales versus 4.2 percent planned last quarter.

Consumer products companies cited increased concern over demand (42 percent) and competition from foreign markets (31 percent) as potential barriers to growth. However, worries over oil/energy prices remained the leading barrier to growth (72 percent) as crude oil price levels move higher each day. This is in line with industrial manufacturing executives who consider oil/energy the top barrier to growth (66 percent), according to PricewaterhouseCoopers' Manufacturing Barometer. Consumer products executives who are concerned about oil/energy slashed their revenue projections to 4.9 percent in Q4, compared to a 6.5 percent revenue growth rate last quarter.

Despite widely promoted recalls reported over the past few months, the majority of consumer products companies (69 percent) said they have not experienced a product recall. Only 17 percent of executives believe their companies' exposure to product or raw-material related recall from foreign sources has increased during the past 12 months.

Looking ahead over the next 12 months, 71 percent said they believed exposure to product or raw material recall from foreign sources will remain the same. Despite this fact, the majority of consumer product executives (74 percent) said they are currently taking action to manage risk related to product or raw material recalls, such as conducting supplier audits and investigating alternative suppliers. Fourteen percent of companies said they are not exercising any risk management actions.

Sustainability is an issue of increasing importance for consumer products executives. In fact, nearly half (45 percent) of consumer products companies said they currently have a formal sustainability strategy in place for their businesses. Only 21 percent of executives reported not having a sustainability strategy in place.

The barometer reports that consumer products companies that embrace sustainable practices are more likely to make 3-4 changes in their strategy over the next 12 months, including increased compliance monitoring (89 percent), improved sustainability reporting (77 percent), and changing products (73 percent).
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